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AfricaApril 30 2015

Côte d’Ivoire wins investors by taking the long view

A loyal investor base welcomed the long-dated bond with three equal maturities that helped smooth the Côte d’Ivoire sovereign's refinancing profile.
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Côte d’Ivoire wins investors by taking the long view

For years the economic underdog, Africa’s fortunes have changed dramatically in recent times. Even as the BRIC growth story began to lose its lustre, Africa emerged as a continent that was finally beginning to fulfil its potential. The starting point was low, admittedly, but growth rates were often stellar, luring investors in from far and wide.

In 2014, however, the cracks began to show, as tumbling oil prices, weakness across commodity markets and political volatility took their toll. Such a backdrop is less than ideal for bond issuance, particularly as the capital markets remain virgin territory for most African countries.

Stellar growth

Côte d’Ivoire seems slightly different, however. The country experienced a period of intense political unrest in 2011 but since then economic growth has been robust, rising by 10.7% in 2012, 9.2% in 2013 and 9% in 2014, with a 10% figure forecast for 2015.

“Côte d’Ivoire benefits from key growth drivers, such as high public and private investment, strong export capacity and favourable demographics. The country also benefits from factors supporting fiscal, macroeconomic and monetary stability, such as moderate levels of public debt, sound external accounts and a structural trade surplus, as well as the security of the CFA Franc peg to the euro,” says Nialé Kaba, the minister of finance and the economy for Côte d’Ivoire.

In 2014, Côte d’Ivoire launched a highly successful $750m, 10-year bond. This year, Ms Kaba decided to return to the capital markets with a more adventurous transaction – a $1bn benchmark Eurobond with a maturity schedule divided into three equal payments due in 2026, 2027 and 2028.

“The structure was intended to smooth Côte d’Ivoire’s debt maturity profile, avoid a concentration of maturities and establish a long-term pricing reference for the country,” says Ms Kaba.

Picking its moment

Côte d’Ivoire began thinking about the 2015 bond late last year, discussing the transaction with the International Monetary Fund as part of its 2015 budget. “Concerning timing, two market factors were key; first the increase in sovereign spreads since autumn 2014, linked to higher volatility on commodity markets and emerging market-specific factors, and second, the expected increase in the US Federal Reserve's interest rate this year. In our view, these developments increased the likelihood of a tighter market window for African sovereigns later this year,” says Ms Kaba.

“Issuing early in 2015 had strategic benefits as well. First, it allowed us to open the market and anchor investor perceptions about our relative and fundamental strengths as a regional issuer. Second, it allowed us to benefit from continuing strong appetite for Côte d’Ivoire’s credit,” she adds.

The country chose BNP Paribas, Citi and Deutsche as bookrunners for the issue, after a beauty pageant conducted by the Direction des Marchés Publics (DMP).

“Each proposal was rigorously analysed by our DMP, based on a combination of technical and financial criteria. The banks that received the highest scores were appointed as bookrunners. The banks we chose also led our 2014 Eurobond and handled it in a very satisfactory way,” says Ms Kaba.

High acceptance rate

Having appointed the three bookrunners, Ms Kaba and her team embarked on an international roadshow, spanning London, New York and Boston.

“Although we conducted the roadshow in specific cities, we spoke to a wide range of investors across the US and Europe. For timing considerations, we made a strategic choice about the cities we visited to maximise the number of investors we could meet and target those most likely to take part in the transaction,” says Ms Kaba. “We achieved an exceptionally high, 97% conversion rate of investor meetings to orders, which proved our choice was right.”

Unsurprisingly, investors had a wide range of questions but focused particularly on the use of the bond money, Côte d’Ivoire’s growth prospects and political stability. “Côte d’Ivoire’s economic outlook is widely perceived to be strongly positive. The key challenge for us was to explain the positive differentiation factors from our peers, in the context of oil and US dollar volatility,” says Ms Kaba.

Ultimately, investors were satisfied and the book grew to about $4bn with more than 240 orders. As a result, pricing was tightened by 25 basis points from initial price talks and the coupon was fixed at 6.625%.

“The book was built with an overwhelming majority of fund managers whom we know, and who have demonstrated their willingness to invest in Côte d’Ivoire for the long term,” says Ms Kaba.

The country is coming to the end of its three-year National Development Plan, which was started in 2012 and designed to boost economic growth and employment by increasing public investment and encouraging the development of the private sector. Proceeds from the bond will be used to implement strategic investments under the National Development Plan, with a specific focus on infrastructure, education, health and agricultural sectors.

Happy with the results of the $1bn benchmark, Côte d’Ivoire has no plans to return to the markets but Ms Kaba is keeping her options open. “We do not expect to return to the international markets in the near future but we will consider any opportunity which may arise,” she says.

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